Hydro debt grows, B.C. deficit shrinks

The 80-year-old Ruskin dam and powerhouse is getting an upgrade expected to cost up to $850 million. B.C.'s auditor general has criticized BC Hydro for deferring debt for projects such as the Fraser Valley dam

VICTORIA – Energy Minister Rich Coleman is examining BC Hydro’s rapidly growing deferred expenses, part of which end up as a dividend to ease the provincial government’s deficit.

Auditor General John Doyle reviewed BC Hydro’s books and found that as of March, $2.2 billion of the utility’s debt was placed in deferral accounts. Deferred expenses are expected to grow to $5 billion by 2017.

In a report released Friday, Doyle said deferral accounts for major capital costs are an acceptable practice to smooth out rate increases, but BC Hydro’s use of it runs ahead of other Canadian utilities. The practice can “mask the true cost of doing business, creating the appearance of profitability where none actually exists, and place undue burdens on future taxpayers,” Doyle warned.

Doyle added that “there does not appear to be a plan to reduce the balance of these accounts.”

Coleman acknowledges that the share of declared profit BC Hydro is required to pay to government has reduced the provincial deficit. BC Hydro paid $463 million to the province in March, based on a legislated formula that it provide 85 per cent of net income to its only shareholder, the B.C. government.

Coleman said he is studying Doyle’s report, including the conclusion that deferred debt is creating an illusion of BC Hydro profit when the corporation is running at a loss. He said he will also review bonuses paid to senior management for achieving profit goals.

The province’s deficit for the current fiscal year is expected to be $2.3 billion, an estimate that tripled when the harmonized sales tax was defeated in a referendum and the government had to budget for paying back transition funds to Ottawa.

NDP leader Adrian Dix pressed Coleman in the legislature Tuesday to account for bonuses paid to BC Hydro executives. Coleman replied that profits were only one determinant of bonuses, along with worker safety and customer satisfaction.

Current electricity rates include 2.5 per cent that raises $100 million a year to pay down deferred accounts.

Coleman also defended a deferral account set up to pay the $930 million cost of installing BC Hydro’s smart grid. Savings from that upgrade are sufficient to pay for the capital cost, he said.

NDP finance critic Bruce Ralston reminded Coleman that the association of major industrial power users has also raised concerns about BC Hydro’s growing deferred debt, and the potential to deter new mines and other investments that face higher rate increases in the future.